Globalization, technology, and inequality

Mainstream economists want to have it both ways: globalization and technology created inequality, and more globalization and technology will solve the problem of inequality.

Kenneth Rogoff is the latest mainstream economist to try to make this argument. In his view,

the relentless march of technology and globalization has played out hugely in favor of high-skilled labor, helping to fuel record-high levels of income and wealth inequality around the world.

But, don’t worry. There’s no need for governments “to intervene radically in markets to restore social balance.” Instead, the “global trading system” will allow companies to adopt technologies that save on skilled labor and to “level the playing field in education.”

On one point he’s right: capitalist enterprises do have an incentive to adopt technologies based on artificial intelligence to eliminate certain forms of skilled labor. It’s already happening to doctors, lawyers, engineers, and other highly paid professionals.

But Rogoff is wrong in many other senses. First, the grotesque levels of income inequality that have emerged over the course of the past 30 years are not based on a gap between skilled and unskilled labor. The real gap is between those at the top—the top 1 percent, especially the top .1 percent—and everyone else. Second, that gap is not due to “the relentless march of technology and globalization.” It’s the effect of capitalist decisions to pursue strategies of technological change and global expansion (of production and markets), together with tax reductions for wealthy individuals and large corporations. The result has been to increase the amount of the surplus, and to allow those at the top to get and keep a large share of that surplus.

In other words, existing levels of inequality are the result of particular forms of economy and society, not (as Rogoff and other mainstream economists like to see it) exogenous factors such as technological change and globalization. What that means is that more technological change and globalization of the sort we’ve seen in recent decades will not solve the problem of inequality—anymore than Rogoff, an international chess grandmaster, will figure out how to win against a chess-playing computer.